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Welcome to Euro Shorts, a short briefing on some of the week’s developments in the financial services industry in Europe.

If you would like to discuss any of the points we raise below, please contact me or one of our other lawyers.

Claire Cummings

020 7585 1406 claire.cummings@cummingslaw.com www.cummingslaw.com

Cameron and Merkel talks

During talks this week between Germany and the UK, David Cameron has said he is "convinced" he can "fix the problems" in the UK's relationship with Europe and that he "profoundly" believed the EU needed to be reformed. According to reports, Angela Merkel lent qualified support to David Cameron’s plans to restrict state benefits to EU migrants, but declined to endorse changes to the EU’s governing treaties. Ms Merkel said she wanted the UK in a "strong and successful Europe" and that she was ready to seek "common solutions" to the UK’s concerns about the way the EU works, adding: "Where there's a will there's a way". British officials described her words as “supportive”.

Draghi comments cause fall in euro

The euro fell last week in response to comments made by Mario Draghi, president of the European Central Bank. Mr Draghi hinted that the ECB may soon start a policy of quantative easing to try to stimulate the eurozone. Mr Draghi is reported to have said: "We are making technical preparations to alter the size, pace and composition of our measures in early 2015..", which suggested

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that the ECB would soon adopt sovereign debt QE, possibly at the ECB’s next meeting on 22 January. Although the ECB has already cut interest rates to a record low level, and also bought some bonds issued by private companies, a full-scale programme of QE has not yet been launched. However, it has been on the cards since April 2014, when Mr Draghi made the first of a series of comments suggesting that he might trigger such a policy in due course.

Eurozone inflation turns negative

In addition to the fall in the euro, official figures this week show that inflation in the eurozone has turned negative. The fall was apparently driven mainly by lower energy costs due to the plunging price of oil. This is the first time since 2009 that the eurozone has experienced deflation and this will add pressure on the ECB to take further action to stimulate the eurozone economy, although Germany reportedly opposes more quantative easing. The situation is further complicated by Greece, as its debt burden will be increased by deflation, which is a key issue in the country’s current general election campaign.

Definition of derivatives under MiFID

ESMA has published a list of responses it has received to its consultation paper on draft guidelines on the definition of commodity derivative contracts under MiFID (ESMA/2014/1189). The guidelines have been proposed to ensure the consistent classification of certain financial instruments as derivatives, allowing a consistent approach towards the implementation of EMIR until the implementation of MiFID II. Respondents include the City of London Law Society (CLLS), the European Association of CCP Clearing Houses (EACH), the Federation of European Securities Exchanges (FESE), the Global Financial Markets Association (GFMA), ISDA and the Futures Industry Association (FIA) Europe.

France shifts position on FTT

Francois Hollande has shifted position on the proposed financial transaction tax and has said that the money raised by the tax should go towards projects aimed at mitigating climate change. M Hollande said such a tax should be put in place

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next year in willing European countries on "all financial products at a low rate". That is a shift of position for France, whose insistence that financial derivatives products important for French banks be excluded from the products to be taxed led to the failure of talks to finalise the FTT last month between the 11 Member States supporting the tax. In the initial talks, it was proposed that the proceeds would go towards financing future bailouts, sparing the taxpayer from saving big banks caught out by over-speculation, but this week M Hollande proposed the funds raised by the tax "be used for the environment, the fight against global warming."

ESMA discussion on UCITS share classes

ESMA has published a discussion paper on share classes of UCITS (ESMA/2014/1577). UCITS IV recognises the possibility for different share classes to be offered to investors, but it does not prescribe whether, and to what extent, share classes of a given UCITS can differ from each other. ESMA has identified diverging national practices relating to the types of share class that are permitted, as a result of which ESMA is of the view that there is merit in developing a common understanding of what constitutes a share class of UCITS and of the ways in which share classes may differ from each other. The discussion paper sets out ESMA's views on what constitutes a share class, including how to distinguish share classes from compartments of UCITS, and possible approaches to the extent of differentiation between share classes that should be permitted. The closing date for responses to the discussion paper is 27 March 2015.

Proposed regulation on securities financing transactions

The European Parliament's Committee on Economic and Monetary Affairs (ECON) has published its draft report on the proposed Regulation on securities financing transactions. The draft report contains a European Parliament legislative resolution on the Regulation, the text of which sets out suggested amendments to the Commission's original proposal. It also contains an explanatory statement commenting on the following key issues: (i) the reporting obligation, which should cover all financial and non-financial counterparties, except central banks and their counterparties; (ii) transparency requirements, including that investment funds must disclose all relevant details of SFT

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activities in their applicable report and investor documents comments; and (iii) the issue of re-use, whereby the Regulation should aim at making the EU compliant with Financial Stability Board (FSB) recommendations on SFTs.

ESMA reviews CCP colleges under EMIR

ESMA has published a peer review report on its participation in the supervisory colleges established under EMIR to authorise and supervise EU-based CCPs. The report is based on ESMA's experience in the initial phase of the college process and focuses on the establishment of the colleges, their review of CCP authorisation applications, their review of the competent authorities' risk assessments and their adoption of the joint opinions on CCP authorisations. ESMA is a member of every college to ensure the consistent and correct application of EMIR. The review identifies no issues that would require ESMA to issue guidelines and recommendations or any other form of legal instrument.

JPMorgan settles FX manipulation antitrust lawsuit

JPMorgan Chase & Co has become the first bank to settle a U.S. antitrust lawsuit by agreeing to pay investors about $100 million. The lawsuit was instigated by a number of investors, including the city of Philadelphia, hedge funds and public pension funds, who accused 12 banks of having conspired since January 2003 in chat rooms, instant messages and emails to manipulate the WM/Reuters Closing Spot Rates. Other defendants include Bank of America, Barclays, BNP Paribas, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, Morgan Stanley, RBS and UBS AG. The lawsuit is separate from the investigations carried out by regulators worldwide into whether banks manipulated the FX market. As previously reported in Euro Shorts, JPMorgan agreed in November to pay roughly $1.01 billion as a result of such investigations by the CFTC, the FCA and other European regulators. Five other banks settled for an additional $3.3 billion.

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Cummings

Tel: + 44 20 7585 1406 Mob: + 44 7734 057 327

www.cummingslaw.com 9 January 2015